Skip to content


Jagannath Fakirchand Marwadi Vs. Baburao Ganesh Deshmukh - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtMumbai
Decided On
Case NumberCivil Revision Application No. 285 of 1942
Judge
Reported inAIR1944Bom72; (1943)45BOMLR1069
AppellantJagannath Fakirchand Marwadi
RespondentBaburao Ganesh Deshmukh
Excerpt:
provincial insolvency act (v of 1920), sections 37, 43, 53 and 54-insolvency-adjudication-property vested in receiver-suit by receiver to set aside fraudulent alienation-annulment of adjudication-appointment of custodian-whether custodian can continue suit.;where an order adjudicating a debtor insolvent has been annulled by the insolvency court under section 43 of the provincial insolvency act, 1920, for failure of the insolvent to apply for his discharge within the time allowed to him by the order of adjudication, the custodian of the property of the debtor, appointed by the insolvency court under section 37 of the act, can continue an application filed by the receiver in insolvency under sections 53 and 54 of the act for setting aside an alienation alleged to be fraudulent.;vijaysing..........order for the court to pass is that the appointee should continue to realize and distribute the debtor's property in accordance with the provisions of the insolvency act. it was further held that the order under section 37 has not the effect of continuing the insolvency proceedings for all purposes; that the person appointed under section 37 has not by the mere fact of appointment the powers which a receiver has under the act, but has only such powers as are necessarily implied by the vesting order, which are to carry out the directions of the court in connection with the realization and distribution of the debtor's property in accordance with the insolvency act, the learned judges then went on to consider the question which arises in the application before us, and which according to.....
Judgment:

N.J. Wadia, J.

1. The question arising for decision in this revision application is whether, when an order adjudicating a debtor insolvent has been annulled by the Insolvency Court under Section 43 of the Provincial Insolvency Act for the failure of the insolvent to apply for his discharge within the time allowed to him by the order of adjudication, the custodian of the property of the debtor appointed by the Insolvency Court under Section 37 of the Act could, continue an application which had been made by the receiver in insolvency under Sections 53 and 54 of the Act for setting aside a fraudulent alienation.

2. The facts are briefly as follows. The petitioner, Jagannath Fakirchand Marwadi, who was a creditor of one Ramkisan Khubchand, filed a darkhast against him to recover a certain amount due to him, and on May 28, 1934, the debtor Ramkisan executed in favour of the petitioner a mortgage-deed for Rs. 7,000 in respect of two houses. On June 11, 1934, another creditor of Ramkisan filed application No. 14 of 1934 for declaring Ramkisan an insolvent, and on June 8, 1936, Ramkisan was adjudicated an insolvent. The opponent in this application, Mr. Deshmukh, was appointed receiver of the insolvent's property. By the order of adjudication the insolvent was directed to apply for discharge within two years. In the course of the insolvency proceedings on December 22, 1936, the receiver in insolvency filed application No. 254 of 1936 against the petitioner, the mortgagee, under Sections 53 and 54 of the Provincial Insolvency Act, 1920, to set aside the mortgage in the petitioner's favour. The insolvent failed to apply for discharge within two years from the date of adjudication, and on August 3, 1940, the Insolvency Court annulled the order of adjudication under Section 43 of the Act. The Court also made an order under Section 37 vesting the property of the insolvent in a custodian. Mr. Deshmukh who had been the receiver in the insolvency was appointed the custodian. On the same day, on the petition of one of the creditors, the Court made an order that the application made by the receiver under Sections 53 and 54 of the Insolvency Act should be continued by the custodian. This order appears to have been made without hearing the mortgagee, the applicant before us, and he applied for a reconsideration of the order. His application was dismissed and the previous order directing the custodian to continue the proceedings under Sections 53 and 54 of the Act was confirmed. The applicant appealed to the District Court, and the learned Assistant Judge who heard the appeal confirmed the order made by the Insolvency Judge. It is against this order that the applicant has come in revision.

3. The contention urged on behalf of the applicant is that on the annulment of the adjudication under Section 37 the insolvency proceedings ipso facto terminated, that the powers of the receiver also terminated, and that the custodian of the property appointed under Section 37 could not continue proceedings under Sections 53 and 54 of the Provincial Insolvency Act which might have been commenced prior to the annulment of the adjudication. It is argued that to take any other view would amount to holding that in spite of the annulment of the adjudication the proceedings in insolvency could be continued in another form, and that the custodian appointed to deal with the property could do everything that the receiver in insolvency is empowered to do under the Act.

4. Section 43 of the Provincial Insolvency Act provides that :

(1) If the debtor does not appear on the day fixed for hearing his application for discharge or on such subsequent day as the Court may direct, or if the debtor does not apply for an order of discharge within the period specified by the Court, the order of adjudication shall be annulled, and the provisions of Section 37 shall apply accordingly.

The second clause of the section makes it clear that this section is intended to provide a penalty for a debtor who fails to apply for his discharge within the time provided for doing so. Section 37 provides that :

(1) Where an adjudication is annulled, all sales and disposition of property and payments duly made, and all acts theretofore done, by the Court or receiver, shall be valid; but, subject as aforesaid, the property, of the debtor who was adjudged insolvent shall vest In such person as the Court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, by order in writing, declare.

It is clear from the provisions of this section that the Act contemplates that in certain cases it may be necessary for the Court to retain control over the property of the debtor by the appointment of a custodian, in spite of the annulment of adjudication, and to that extent the proceedings in insolvency have to be continued. But the question whether a custodian so appointed under the provisions of Section 37 has power to continue proceedings which had been started by the receiver in insolvency under Sections 53 and 54 of the Act prior to the annulment of adjudication is not free from doubt. Section 37 provides that on the annulment of the adjudication the property of the debtor, who had been adjudged insolvent, shall vest in the custodian, if any, who might be appointed, and a difficulty arises whether it can be said that property which has been alienated by the debtor, and the alienation of which has not been set aside, can be regarded for the purposes of Section 37 as the property of the debtor which the custodian can deal with, or with regard to which he can continue proceedings which might have been started by the receiver.

5. The learned Assistant Judge has taken the view that the custodian has the power to continue such proceedings, and in support of this view he has relied on a decision of a division bench of the Madras High Court in Jethaji Peraji Firm v. Krishnayya I.L.R. (1929) Mad. 648. It was held in that case that on an annulment of adjudication under Section 43 of the Provincial Insolvency Act owing to the insolvent's failure to apply for his discharge the insolvency proceedings do not necessarily come to an end and his property does not ipso facto revert to the insolvent; that the Court may, in proper cases, vest it in the Official Receiver or other person as provided by Section 37 of the Act; and that if before the annulment the Official Receiver had applied to set aside a mortgage under Section 54 of the Act, as an act of fraudulent preference, he can prosecute the application after the annulment. A contrary view has been taken by a full bench of the Rangoon High Court in Jaing Bir Singh v. The Official Receiver I.L.R. (1933) Ran. 287. It was held in that case that on an order of annulment being passed under Section 43 of the Provincial Insolvency Act the Court ceases to have jurisdiction to entertain, hear, or determine an application by the receiver to have a transfer of property set aside under Section 53 or Section 54 of the Act, whether such application was presented before or after the order of annulment; that in making a vesting order under Section 37 the Court may impose conditions relating to the property of the debtor, but not of any other person; and that in vesting the property of the debtor in any appointee, the Court cannot order that he should continue the liquidation of the debtor's assets on the same terms and conditions as those on which the receiver in insolvency would have been entitled to carry out the liquidation of the estate if the insolvency had still been subsisting. The contrary view taken by the Madras High Court in Jethaji's case and other decisions to the same effect were considered and expressly dissented from.

6. The trial Judge and the learned Assistant Judge have referred to both these decisions and have followed the Madras view. When this application was admitted, no Bombay decision was referred to. Our attention has now been drawn to an unreported decision of this Court in Vijaysing Raisingji Desai v. Chhotalal Trimbakmal Parekh (1931) Second Appeal No. 510 of 1930, decided by Baker and Nanavati JJ., on December 9, 1931 (Unrep.). The same question arose for consideration. An order adjudicating a person insolvent had been annulled for the failure of the insolvent to apply for his discharge within the period allowed by the order of adjudication. In making the order the Judge directed under Section 37 of the Provincial Insolvency Act that the receiver in insolvency was to remain vested with the property of the insolvent. Prior to the annulment of the adjudication the receiver had instituted proceedings under Section 53 of the Act. It was contended that on the annulment of the adjudication the proceedings under Section 53 terminated. The trial Judge accepted this contention. In appeal the Assistant Judge, relying on the decision of the Madras High Court in Jethaji Peraji Firm v. Krishnayya, held that the order under Section 37 validated what had been done by the receiver before the adjudication, and that the proceedings under Section 53 started by the receiver could be continued. A division bench of this Court confirmed this decision. The decision in Jethaji's case was referred to and approved. It was pointed out that it was the debtor's fault that he did not comply with the Court's order, that he should seek his discharge within nine months; that the order of annulment was clearly provided in the Act as a method of punishing such neglect of the debtor and was not an order intended to operate for his benefit or to punish the creditors.

7. The view taken by the learned Assistant Judge in the present case is therefore fully supported not merely by the decision of the Madras High Court on which he has relied, but also by the unreported ruling of this Court which had been given prior to the decision of the Assistant Judge, but of which he was not aware. In these circumstances it could not be said that the view taken by the Assistant Judge was not according to law within the meaning of Section 75 of the Provincial Insolvency Act. It has been contended, however, very strenuously before us by Mr. Dixit, who has argued this application with great ability, that the decision of the Madras High Court in Jethaji's case, which was followed in the unreported decision of this Court in Vijaysing v. Chhotalal, is one which requires reconsideration in view of the judgment of the full bench of the Rangoon High Court in Jaing Bir Singh's case, in which the difficulty involved in the construction put upon Sections 37 and 43 of the Act by the Madras High Court in Jethaji's case has been pointed out, and the view there taken expressly dissented from.

8. That there are some difficulties in accepting the view taken by the Madras High Court in Jethaji Peraji's case and by this Court in Vijaysing v. Chhotalal may be admitted, and if the matter were res Integra, speaking for myself, I would have felt considerable hesitation in accepting the view which has been taken in Vijaysing v. Chhotalal by this Court. But the view which was taken by this Court in that appeal was not merely based on the decision of the Madras High Court in Jethaji Peraji's case and certain other earlier decisions of the same Court, but has also since been supported by the decision of a full bench of the Madras High Court in Veerayya v. Shreenivasa Rao I.L.R. (1935) Mad. 908 in which all the earlier decisions of the Madras and other High Courts and. the decision of the Rangoon High Court in Jaing Bir Singh's case were reviewed. The questions referred to the full bench in that case were :

(1) Where the Insolvency Court annuls an adjudication under Section 43 of the Provincial Insolvency Act...and chooses to pass an order under Section 37 vesting the properties of the quondam insolvent in an appointee (Official Receiver or any other person), is the administration in insolvency to continue for the realisation and distribution of the assets by such a person despite the annulment of the adjudication itself and

(2) if not, what is the scope of his functions as a trustee by reason of the vesting order under Section 37 ?

It was held by the full bench that the Insolvency Court retains full power to give direction under Section 37 as to the realization and disposal of the debtor's assets; that that power should not be used arbitrarily, but should be used in the interests not of this or that individual creditor, but of the whole body of creditors, which means in other words that the only proper order for the Court to pass is that the appointee should continue to realize and distribute the debtor's property in accordance with the provisions of the Insolvency Act. It was further held that the order under Section 37 has not the effect of continuing the insolvency proceedings for all purposes; that the person appointed under Section 37 has not by the mere fact of appointment the powers which a receiver has under the Act, but has only such powers as are necessarily implied by the vesting order, which are to carry out the directions of the Court in connection with the realization and distribution of the debtor's property in accordance with the Insolvency Act, The learned Judges then went on to consider the question which arises in the application before us, and which according to them arose in that case also (p. 925) :-

A second matter however falls, we think, to be decided by the terms of the reference to us, even though on the facts of this particular case it does not directly arise. It might be argued that the 'assets' of the debtor, and 'assets' is the word used in question 1, include property which though nominally alienated by him is property to which he is really entitled. The question then arises as to the powers of the person appointed under Section 37 in respect of applications under Sections 53 and 54. We must consider two separate situations : (i) where such an application is already pending when the order of annulment is passed under Section 43, and (ii) where it is sought to be made after that order is passed. And in considering these situations we must presume that the person appointed under Section 37 is the Official Receiver who was Receiver under the Act before the annulment.

After referring to the conflicting decisions in Jethaji Peraji Firm v. Krishnayya and Jaing Bir Singh v. The Official Receiver, they agreed with the view taken in Jethaji Peraji's case and said (p. 927) :-

If once the making of a claim by the Receiver to certain property as being in essence the property of the insolvent has been validated, we can see no logic in the view that would prevent the adjudication of that claim.

9. In a very recent decision of the Lahore High Court, Nizam Khan, v. Hukam Chand I.L.R. (1941) Lah. 330, the same question arose for consideration. The view taken by the Madras High Court in Jethaji Peraji Firm v. Krishnayya and Veerayya v. Shreenivasa Rao and the contrary view taken by the Rangoon High Court in Jaing Bir Singh v. The Official Receiver were considered, and the view taken was that accepted by the Madras High Court. It was held that in spite of the annulment of an adjudication under Section 43 of the Act the persons in whom the property vests under Section 37 have full power to deal with it and can proceed to distribute the estate, and that an annulment of adjudication does not operate so as to cause abatement of proceedings already instituted under Sections 53 and 54 of the Act.

10. Although there is something to be said in favour of the view taken by the Rangoon High Court in Jaing Bir Singh v. The Official Receiver, that view also is not free from difficulty, as was pointed out in the full bench decision of the Madras High Court and in the judgment of this Court in Vijaysing v. Chhotlal. The weight of authority is in favour of the view which has been taken by the Madras High Court in the two decisions to which I have referred above, and that view has also been accepted by this Court. We are not prepared to differ from that view.

11. The rule will, therefore, be discharged. The applicant must pay the costs of the opponent.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //